{"id":41958,"date":"2023-03-01T10:00:26","date_gmt":"2023-03-01T04:30:26","guid":{"rendered":"https:\/\/www.aplustopper.com\/?p=41958"},"modified":"2023-03-02T09:40:27","modified_gmt":"2023-03-02T04:10:27","slug":"plus-two-macroeconomics-chapter-wise-questions-answers-chapter-4","status":"publish","type":"post","link":"https:\/\/www.aplustopper.com\/plus-two-macroeconomics-chapter-wise-questions-answers-chapter-4\/","title":{"rendered":"Plus Two Macroeconomics Chapter Wise Questions and Answers Chapter 4 Income Determination"},"content":{"rendered":"
Question 1.
\nThe ratio of total additional planned savings in an economy to the total additional income of the economy is …….
\n(\u0430) APS
\n(b) MPS
\n(c) MPC
\n(d) APC
\nAnswer:
\n(b) MPS<\/p>\n
Question 2.
\nIf MPS is 0.7, then MPC is
\n(a) 1
\n(b) 0
\n(c) 0.7
\n(d) 0.3
\nAnswer:
\n(d) 0.3<\/p>\n
Question 3.
\nIn an economy, C = 40, 1 = 10, MPC = 0.8, Y = 200. Then equilibrium level of income in
\n(a) 200
\n(b) 210
\n(c) 160
\n(d) 250
\nAnswer:
\n(b) 210<\/p>\n
Question 4.
\nMultiplier is equal to
\n(a) \\(\\frac{1}{1-\\mathrm{MPC}}\\)
\n(b) \\(\\frac{1}{1+M P C}\\)
\n(c) \\(\\frac{1}{1-\\mathrm{MPS}}\\)
\n(d) \\(\\frac{1}{M P C+M P S}\\)
\nAnswer:
\n(a) \\(\\frac{1}{1-\\mathrm{MPC}}\\)<\/p>\n
Question 5.
\nIn the aggregate demand function y = A + c.y, MPC is represented by
\n(a) y
\n(b) A
\n(c) c
\n(d) None of these
\nAnswer:
\n(c) c<\/p>\n
Question 6.
\nThe world wars adversely affected the European economy. Hence consumption and savings were low. But the ratio of consumption to income was high.
\na. Can you connect the above situation with any Keynesian proposition? Name it.
\nAnswer:
\na. Consumption function with high mpc.<\/p>\n
Question 7.
\nOne among the following is not a characteristic of Keynesian consumption function.
\n(a) The aggregate real consumption expenditure is a stable function of real income.
\n(b) The mpc must lie in between zero and One
\n(c) The consumption is a function of rate of interest
\n(d) The mpc = 1 – mps
\nAnswer:
\n(c) The consumption is a function of rate of interest<\/p>\n
Question 8.
\nSuppose that there is an increase in autonomous investment. If so which of the following situations represent greater multiplier effect on income.<\/p>\n
Answer:<\/p>\n
Question 1.
\nState whether the following statements are true or false and justify your answer.<\/p>\n
Answer:<\/p>\n
Question 2.
\nCalculate Multiplierwhen MPS = 0.8
\nAnswer:
\nK = 1 \/ MPS
\n= 1\/ 0.8 =1.2<\/p>\n
Question 3.
\nGive the meaning of Ex ante, Ex post, Ex ante consumption, and Ex ante investment.
\nAnswer:
\nEx-ante and Ex-post:
\nConsumption, savings, and investment can be classified into Ex-ante and Ex-post variables. The terms Ex-ante and Ex-post have been derived from the Latin word. Ex-ante means planned or desired. Ex-post means actual or realized. In national income accounting, the variables such as consumption, investment and savings are considered as ex-post variables. The rate at which consumption, savings, and investment are presented in the ex-post sense.<\/p>\n
Question 4.
\nDefine output multiplier.
\nAnswer:
\nThe ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the output multiplier of the economy.
\n\\(\\mathrm{K}=\\frac{1}{1-\\mathrm{MPC}}\\)<\/p>\n
Question 5.
\nRepresent the parametric shift of a graph.
\nAnswer:
\n<\/p>\n
Question 6.
\nClassify the following sentences ex-ante and ex-post.<\/p>\n
Answer:<\/p>\n
Question 7.
\nSome values of mpc are given below. Choose the possible mpc value of a lower income group. Justify mpc value : 0.4, 0.2, 0.9, 0.6
\nAnswer:
\nThe lower-income group have the highest mpc (0.9). They spend a major portion of their income for consumption.<\/p>\n
Question 1.
\nFind the odd one out. Justify your answer.<\/p>\n
Answer:<\/p>\n
Question 2.
\nState whether the following statements are true or false. If false, correct the statement.<\/p>\n
Answer:<\/p>\n
Question 3.
\nCalculate the levels of consumption at different levels of income, if consumption is worth \u20b9200 when income is zero, MPC is 0.8, and income 100, 200, 300, 400, 500.
\nAnswer:
\nWe shall define the consumption function equation as C = a + MPC.Y
\nwhere \u2018a\u2019 is autonomous consumption.
\n<\/p>\n
Question 4.
\n\u201cIncrease in saving leads to decrease in saving\u201d- comment.
\nAnswer:
\nIt is usually accepted that an increase in saving leads to a decrease in saving. This is because, if all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the \u2018Paradox of Thrift\u2019 – which states that as people become more thrifty they end up saving less or same as before.<\/p>\n
Question 5.
\nWhat is deflationary gap? State two measures to remove it.
\nAnswer:
\nWhen aggregate demand falls short of aggregate supply at full employment, it gives rise to deflationary gap. Thus,
\ndeficient demand = aggregate supply – aggregate demand. Measures to remove deflationary gap,<\/p>\n
Question 6.
\nDepict \u2018inflationary gap\u2019 in a diagram.
\nAnswer:
\nThe excess of aggregate demand over aggregate supply at full employment level is known as inflationary gap. The following diagram depicts inflationary gap.
\n<\/p>\n
Question 7.
\nWhat are the components of aggregate demand?
\nAnswer:
\nThe components of aggregate demand are:<\/p>\n
Question 8.
\nUsing data given below construct and aggregate demand schedule for the level of income 500,1000, 1500 and 2000.
\n\\(\\overline{\\mathrm{C}}=50, \\mathrm{c}=0.8, \\overline{\\mathrm{I}}=60\\)
\nAnswer:
\n\\(A D=\\bar{C}+\\overline{1}+c \\cdot y\\)
\n<\/p>\n
Question 9.
\nThe diagram below shows parametric shifts. Explain parametric shift and identify the reason for shifts in the following diagram.
\n
\nAnswer:
\nparametric shifts are those shifts in the lines of a diagram, due to changes in slope or intercept. In diagram (a) the line shifts upward due to increase in the slope. In diagram (b) the shift in the line is due to the change in the intercept. The intercept increases here.<\/p>\n
Question 10.
\nAccording to Keynesian model, as saving propensity increases, the equilibrium income decreases. Since the level of income is reduced, the volume of savings also comes down automatically.<\/p>\n
Answer:
\n1. Paradox of Thrift
\n2. example.
\n<\/p>\n
Question 11.
\nThe following diagram shows the equilibrium income situation of a hypothetical economy with mpc 0.6 and a =70
\n
\nAnalyse the following situations and represent the resulting change in the diagram.<\/p>\n
Answer:
\n1. Change in the slope parameter. AD curve swings upward<\/p>\n
2. Change in the intercept parameter. AD curve shift upward<\/p>\n
3.
\n<\/p>\n
Question 1.
\nMatch the following.
\n
\nAnswer:
\n<\/p>\n
Question 2.
\nFrom the following data, calculate<\/p>\n
Consumption = 400, Income = 500, Change in income 600, change in consumption = 450
\nAnswer:
\nFrom the data, we get, C = 400,Y = 500, \u0394C = 50, \u0394Y = 100<\/p>\n
Question 3.
\nSuppose income increases by 10 and the MPC is 0.8. Explain the multiplier mechanism with the help of a table.
\nAnswer:
\nWhen income increases by 10, consumption expenditure goes up by (0.8)10 since people spend 0.8 (= MPC) fraction of their additional income on consumption. Hence, in the next round, aggregate demand in the economy goes up by (0.8)10 and there again emerges an excess demand equal to (0.8)10.<\/p>\n
Therefore, in the next production cycle, producers increase their planned output further by (0.8)10 to restore equilibrium. When this extra output is distributed among factors, the income of the economy goes up by (0.8)10 and consumption demand increases further by (0.8)210, once again creating excess demand of the same amount.<\/p>\n
This process goes on, round after round, with producers increasing their output to clear the excess demand in each round and consumers spending a part of their additional income from this extra production on consumption items-thereby creating further excess demand in the next round.
\n
\nIn order to find out the total increase in output of the final goods, we must add up the infinite geometric series in the last column, i.e.
\n10 + (0.8)10 + (0.8)210 + ……… \u221d
\n= 10(1 + (0.8) + (0.8)2 + ……….. \u221d}
\n= 10\/1 – 0.8 = 50
\nThe increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the output multiplier of the economy.<\/p>\n
Question 4.
\nExplain the meaning of the break-even point. Illustrate the concept.
\nAnswer:
\nBreak-even point refers to that point in the level of income at which consumption expenditure becomes exactly equal to income and there is no saving. In other words, whole of income is spent on consumption and as a result, there is no saving.<\/p>\n
It happens when income increases from low level to high level, it becomes equal to consumption expenditure at some level and that level is called break even point. Below this level of income, consumption is greater than income but above this level, income is greater than consumption.<\/p>\n
This concept can be illustrated as follows. A hypothetical consumption and saving schedule is given.
\n<\/p>\n
Question 5.
\nState the relationship between MPC and MPS.
\nAnswer:
\n1. Marginal Propensity to Consume refers to the ratio of change in consumption to change in income. MPC = AC \/ AY.<\/p>\n
2. Marginal Propensity to Save refers to the ratio of change in saving to change in income. MPS = \u0394S \/ \u0394Y.<\/p>\n
3. The sum of MPC and MPS is always one and equal to unity. That is MPC + MPS = 1 MPS = \u0394S \/ \u0394Y.<\/p>\n
Question 6.
\nMPC of Indian economy is 0.5 and if the level of investment in the economy is increased by 100.<\/p>\n
Answer:<\/p>\n
When the level of investment declines, the total in-come in the economy will decline.<\/p>\n
Question 7.
\nFrom the following data, calculate
\na) APC
\nb) APS
\nc) MPC
\nd) MPS<\/p>\n
Answer:
\nIn the given example,<\/p>\n
<\/p>\n
Question 8.
\nIn an economy investment increases by \u20b9120 crores. The value of multiplier is 4. Calculate the MPC.
\nAnswer:
\n<\/p>\n
Question 9.
\nIn an economy investment increases by \u20b9120 crore. The value of multiplier is 4. Calculate the MPC.
\nWhat do you understand by \u201cparameters of line\u201d? How does a line shifts when its<\/p>\n
Answer:
\nConsider the equation of a straight line of form b = ma + e where, m 0 is called the slope of the straight line, e is called the intercept on the vertical axis. When a increased by 1 unit the value b increases by m units. These are called movements of variables along the line. The entities e and m are called the parameters of the line. As the value of m increases the straight line swings upwards. This is called a parametric shift of line.<\/p>\n
Question 10.
\nWhat is effective demand? How will you derive the autonomous expenditure multiplier when price of goods and the rate of interest are given?
\nAnswer:
\nIf the elasticity of supply is infinite, then the output will be solely determined by the aggregate demand at this price in the economy. This called effective demand. The equilibrium output and aggregate demand at the given price of goods and rate of interest is derived by solving the equation.
\nY = AD.
\nY = A + CY
\nor Y – CY = A
\nor Y(1 – C) = A
\nA is the total value of autonomous expenditure. The value of Y is dependent on the value of parameters A and C.<\/p>\n
Question 11.
\nState true or falls. Correct if they are wrong.
\n(a) v = c + s
\n(b) MPC + MPS \u2265 1
\n(c) \\(K = \\frac{1}{1-M P S}\\)
\n(d) \u0394Y = K\u0394l
\nAnswer:
\n(c) \\(K = \\frac{1}{1-M P S}\\)<\/p>\n
Question 12.
\nGraphically determine the following situations.<\/p>\n
Answer:
\n1. Full employment situation or equilibrium
\n
\n2. Deficient demand
\n
\n3. Excess demand
\n<\/p>\n
Question 13.
\nSuggest the fiscal policy measures to correct excess demand and deficient demand
\nAnswer:
\na. Excess demand<\/p>\n
b. Deficient demand<\/p>\n
Question 14.
\nidentify the relation between multiplier and MPC.
\nAnswer:
\nThe value of the multiplier is determined by marginal propensity to consume. Higher the MPC, greater the size of multiplier lower the MPC, smaller the size of multiplier.<\/p>\n
When income of consumers rises they spend more the value of increase in income, i.e., multiplier depends on MPC, greater the value of multiplier depends on greater size of MPC. Thus there is direct relation between multiplier and MPC. The relation can be expressed in terms of an equation as under
\n
\nThus it is clear from the above equation that the value of MPC and multiplier are positively related.<\/p>\n
Question 15.
\nIn the function AD = \\(\\overline{\\mathrm{A}}\\)+ c. y what happens to the aggregate demand curves when,<\/p>\n
Answer:
\n1. \\(\\overline{\\mathrm{A}}\\)
\n
\nWhen \\(\\overline{\\mathrm{A}}\\) increases, the AD curve shifts upwards parallel to the original AD curve. As a result, income increases from Y, to Y2 and economy reaches to new equilibrium position E2.
\n2. C (mpc) increases.
\n
\nWhen c increases, the AD curve shifts upwards. But it is not a parallel shift, it only swings upward.<\/p>\n
Question 16.
\nNowadays, all governments of third world economies try to attract domestic and foreign investors by providing financial concessions and establishing Special Economic Zones.<\/p>\n
Answer:
\n1. Yes. Investment has a multiplier effect on income. Hence investment is necessary for economic growth.
\n2. impact of this investment on the equilibrium income
\n<\/p>\n
Question 1.
\nDiagram shows the equilibrium of an economy.<\/p>\n
Kerala Plus Two Macroeconomics Chapter Wise Questions and Answers Chapter 4 Income Determination Plus Two Economics Income Determination One Mark Questions and Answers Question 1. The ratio of total additional planned savings in an economy to the total additional income of the economy is ……. (\u0430) APS (b) MPS (c) MPC (d) APC Answer: (b) […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[42728],"tags":[],"yoast_head":"\n
\nAnswer:
\n1. The economy will be in equilibrium when AD = Y1<\/sub> \\(A D=\\bar{C} + \\bar{I} + c, y\\) The two components of aggregate demand in a two-sector model is consumption and investment. In the diagram, OY is the equilibrium level of output.
\n
\n2. When the investment increases the AD curve will shift upward. This is because invest is one of the components of AD. As a results the initial equilibrium changes from e to e1<\/sub> The output increases from y to y1<\/sub>.
\n
\n3. When the investment increased the level of output also increased. In other words, the initial change in investment has brought out a more than proportionate change in the level of income. This is due to the multiplier effect. lt shows the rate of an initial change in investment to the final change in national income.
\n\\(\\text { Multiplier } K = \\frac{1}{1-M P C}\\)<\/p>\nPlus Two Economics Chapter Wise Questions and Answers<\/a><\/h4>\n","protected":false},"excerpt":{"rendered":"